It has been a rollercoaster ride for nickel prices this year, and with global demand expected to rise 10% in 2008, one analyst sees a recovery for the metal.

Nickel prices, currently trading around US$13 per pound, have the ability to bounce back and average US$16 in 2008, according to Desjardins Securities analyst John Redstone. In fact, he thinks price spikes could send the metal as high as US$20.

This should come as a result of resurgent demand and a subsequent small supply deficit next year, he told clients in a note. Even lower inventories are expected to put upward pressure on prices.

Stainless steel production, which accounts for roughly 65% of nickel end use, should rise slightly this year and climb 9.8% in 2008, Mr. Redstone said, adding that the stainless steel inventory correction appears to be over. While nickel demand is expected to jump in 2008, it fell 1.1% in 2007 due to a reduction in stainless steel production.

So which stocks does the analyst recommend for investors looking to capitalize on nickel prices?

Desjardins has a “buy” recommendation on both Sherritt International Corp. (S/TSX) and GobiMin Inc. (GMN/TSX-V), with price targets of $19.30 and $5.30, respectively.

Jonathan Ratner